Almost 30% of our user base is New to Credit (NTC). Being NTC mostly means not having any loans or credit cards. If you belong in that category, this post will help in understanding the importance of building a credit score. We will also share the best strategies to achieve a good score in a short time.
Why do you need a credit score?
Your credit score is one of the metrics that relate to you, like weight, BMI or your age. And just like those numbers, the credit score too isn’t a part of our daily consciousness. We know that something like this exists but don’t pay much attention to it - till we need a loan or a credit card. However, since this has such a massive influence on our financial future, we should regularly check it.
However, unlike weight, age or BMI, you do not automatically have a credit score. Instead, you have to create it, grow it and then ensure that it stays that way. Think of it like exercising to stay fit, except that here, we’re referring to financial fitness.
The Catch-22 situation
To have a credit score , you need a loan or a credit card, but to get a loan or credit card, a financial institution will require a credit score! No worries, we will walk you through how to create a credit score from scratch - and do it as quickly as possible.
Just as there are multiple workout schedules for different intended results and body types, there are various ways of building a credit score depending on your current financial situation.
You have a salary account
If you are working in a company with regular salary being credited to your account, it is likely that you would be getting calls from the bank (where you have the salary account) for a loan or a credit card. In case you are not, feel free to apply for a card from the bank’s website or app. Since you have a salary account with them, there is a very high chance that your application will be approved.
It is best to start with a credit card having a small limit (around Rs.25,000) or as decided by the bank. Once you have the card use it sparingly for essential purchases, and make the complete payment before the due date. Each timely payment will create a trail of good credit behaviour, and within six months, you will have a reasonably good credit score.
You do not have a salary account
There are cases wherein even though you are salaried, you may not have a salary account. For example, you may work in a startup with no fixed payout cycle, or maybe you are getting your salary in cash. This scenario is also applicable to students and homemakers. In such a case, it is best to have a person who will join you in applying for the card. He/She is called a co-applicant, and based on this person’s credit history, you can be given a credit card. Ensure this person has a good credit score (more than 750).
In case this is not possible, try to get a secured credit card, ie. a card which is secured against a fixed deposit. A fixed deposit is comforting for the bank as they know they will not lose money, so they will be willing to give you a credit card. Once you get the card, use it for small purchases and make timely payments (preferably in full) to build a good score.
If you are a student, you can avail of an education loan and pay the EMIs regularly. This is also a good way to build your credit history.
You are self-employed
Many banks have separate cards for Self Employed Professionals like Architects, Doctors, CA etc. Find out if your primary bank (the one that you use most frequently) has such a card. If not, then feel free to apply for such a card with any of the leading banks in India. Most of them will be more than happy to offer you a credit card based on income documents. In case you are not a self-employed professional, apply to the bank you usually deal with. It is possible that you might need to prove your payment capacity by way of income tax returns or bank balance.
These are some ways to get a credit card, and the same principle applies for any loan as well. If you can afford a Home Loan/Auto Loan, it is better to opt for that as it indicates greater stability and responsibility. Both will help you in getting and building a good credit score!